Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/190222 
Year of Publication: 
2018
Series/Report no.: 
ADBI Working Paper No. 801
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
When monetary policy is constrained by the zero lower bound, fiscal policy can be used to achieve macro stabilization objectives. At the same time, fiscal policy is also a key policy variable within a single currency area that allow policy-makers to respond to regional demand asymmetries. How do these two uses of fiscal policy interact with one another? Is there an inherent conflict between the two objectives? How do the answers to these questions depend on the degree of fiscal space available to different members of the currency area? This paper constructs a two-country New Keynesian model of a currency union to address these questions. We find that the answers depend sensitively on the underlying internal structure of the currency union, notably the degree of trade openness between the members of the union.
Subjects: 
Liquidity trap
monetary policy
fiscal policy
international spillovers
JEL: 
E2
E5
E6
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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